Alexi Co. issued $3.40 million face amount of 6%, 10-year bonds on June 1, 2016. The bonds pay interest on an annual basis on May 31 each year.
a. Assume that the market interest rates were slightly higher than 6% when the bonds were sold. Would the proceeds from the bond issue have been more than, less than, or equal to the face amount?
-----The bonds will sell for less than their face amount.
-----The bonds will sell for more than their face amount.
-----The bonds will sell for equal to their face amount.
b-1. Independent of your answer to part a, assume that the proceeds were $3,044,000. Use the horizontal model to show the effect of issuing the bonds. (Use amounts with + for increases and amounts with – for decreases.)
b-2. Independent of your answer to part a, assume that the proceeds were $3,044,000. Record the journal entry to show the effect of issuing the bonds. (Enter your answer in whole dollar, not in millions. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)